Falconer hints at more state funding of political parties

Lord Falconer, the lord chancellor, yesterday gave the strongest indication yet that the government would support an extension of state funding of political parties alongside a cap on large donations for individuals, while admitting that the public was concerned about the influence on parties of a few wealthy individuals.

Giving evidence to the constitutional affairs select committee in the first of many parliamentary inquiries into the loans for peerages scandal, he said: "The obvious worry is that if a few people contribute a significant amount of money to a political party ... they will have undue influence on the policy making of that individual political party. That is a very, very real issue that needs to be addressed."

He also suggested the perception of undue influence wielded by big donors deterred the public from joining parties. "The more influence is diffused across a political party, the more people will be encouraged to join," he said.

Supporting a cap on donations, he said: "If the primary purpose is to avoid a dependence on a small number of donors, then inevitably there must be a cap."

But he resisted suggestions that anyone who loaned money to the government should be debarred from being a minister. Lord Sainsbury, the science minister, lent the Labour party £2m before the election. Lord Falconer said he would be tabling amendments to the electoral administration bill currently in the Lords requiring all future loans to be disclosed.

Speaking on behalf of the government, he also kept open the possibility of fundamental changes in relations between the Labour party and the unions, saying it would be for Sir Hayden Phillips, a former permanent secretary at the Department for Constitutional Affairs who has been appointed by the government to examine state funding, to make recommendations. The government, he said, would not be "bound by submissions the Labour party puts", a remark that will infuriate some union leaders worried about a possible Downing Street agenda of breaking the union-party link.

Sir Hayden was appointed to look at state funding in the wake of the outcry that Labour had received more than £12m in undisclosed loans before the general election, with some of the lenders then proposed for peerages. He is due to report at the end of the year. Lord Falconer, a close ally of the prime minister, denied there was a crisis over the cash for loans scandal, just public concern. He said the dependence on donors had developed due to a fall in memberships and a decline in union and corporate donations.